How I learned to manage my cash flow
One of the main reasons I got into financial trouble in the first place is that as a freelancer I had a variable income that I didn’t know how to manage. I would think of money as mine as soon as my work on any given project was completed. But sometimes the cheque wouldn’t come for six, eight, ten weeks. Sometimes the cheque wouldn’t come for years, as in the case of one rather major client who unfortunately declared bankruptcy after having hired me for four weeks straight. An entire month!
I got into the bad habit of happily, naively borrowing from my line of credit for the amount coming to me, secure in the knowledge that I was “owed” money, even if I didn’t quite have it in my possession yet.
This is a very backwards way of doing things.
In other words, don’t try it at home!
Since taking control of my finances, one of my goals has been to learn how to successfully manage my cash flow.
Here are some tips that have helped me so far.
- Declare a temporary moratorium on all non-essential spending. This will re-set your financial clock.
- Don’t buy anything until you have the cash in hand.
- Figure out how much money you need to make, and try to make it. Freelancers often struggle with how much to ask for as pay. This is a good way of figuring it out! What do you need to live and how many hours are there in a day?
- Offer incentives to clients who pay early.
- Ask for a deposit on large contracts.
- Remember that it is possible to pay for some expenses such as insurance or gym membership in instalments, even if this option isn’t advertised. For example, I have a year-long membership at a yoga studio, which translates into the lowest possible amount per month. It’s advertised as being payable in one lump sum, but I pay for it in monthly instalments. When I renewed recently, the person at the cash couldn’t believe what a good deal I was getting, comparably. Sometimes all you have to do is ask!